Futures and Derivatives Law Report July / August 2024 | Volume 44 | Issue 7
cumstances test analyzes “ the transaction as a whole with a critical eye towards its underlying purpose .” Id . at 48228 n . 214 . The CFTC considers other factors , such as ( i ) whether there is a demonstrable commercial need for the product ; ( ii ) the underlying purpose of the contract ( such as whether the purpose of the claimed forward was to sell physical commodities , hedge risk or speculate ); ( iii ) the regular practices of the commercial entity with respect to its general commercial business and its forward and swap transactions more specifically ; or ( iv ) whether the absence of physical settlement is based on a change in commercial circumstances . Id . at 48231 .
22
See generally Statutory Interpretation Concerning Forward Transactions , 55 Fed . Reg . 39188 ( Sep . 25 , 1990 ) ( hereinafter “ Brent Interpretation ”).
23
Id . at 39190 .
24
Id . at 39191 .
25
Id .
26
See id .
27
Id . at 48317 .
28
7 U . S . C . A . § 1a ( 47 )( B )( ii ).
29
Swaps Definition Final Rule at 48233 .
30
Classification as a non-financial commodity is significant because financial commodities are not eligible for the forward contract exclusion .
31
Swaps Definition Final Rule at 48234 ( emphasis added ).
32
Id . at 48234 ( emphasis added ); see also id . at 48233 n . 269 (“ The definition also requires physical deliverability and , with respect to intangible commodities , ownership transferability and consumability .”); Id . at 48233 (“ Environmental commodities that meet the interpretation regarding nonfinancial commodities discussed in subsection ( ii ) above are nonfinancial commodities and , therefore , a sale for deferred shipment or delivery in such a commodity , so long as the transaction is intended to be physically settled , may qualify for the forward exclusion from the swap definition .”). The CFTC further clarified that no additional requirements apply to environmental commodities when speaking to the cost / benefit analysis of its interpretation when it categorically declared “ renewable energy credits are nonfinancial commodities ” ( without a qualifying reference to consumption ) and noted that “ transactions therein are eligible for the forward exclusion if they satisfy the terms thereof .” Id . at 48317 .
33
7 U . S . C . A . § 2 ( c )( 2 )( D ).
34
Id . § 2 ( c )( 2 )( D )( iii ).
35
Id . § 2 ( c )( 2 )( D )( ii )( III )( aa ).
36
Retail Commodity Transactions Involving Certain Digital Assets , 85 Fed . Reg . 37734 , 37742 ( June 24 , 2020 ).
37
Id .
38
Id . at 37742-43 .
39
Id . at 37743 .
40
Id .
41
Id .
42
Id . at 37744 .
43
To the extent the agreement includes embedded optionality or terms that tend to excuse the parties ’ delivery obligations , other factors may impact its classification . See Swaps Definition Final Rule at 48237-45 .
44
Swaps Definition Final Rule at 48232-33 .
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